Remarkably, the renamed O2 has become the most popular music venue in the world, overtaking New York's Madison Square Garden.

A conga line of stars has played its 20,000-seat arena, from The Rolling Stones to The Eagles and, for one night only, Led Zeppelin.

The O2 was even deemed fit for a Prince. For a record 21 nights, the purple sex midget partied like it was 1999, even though it was summer 2007 and the vast tent in south-east London had been relaunched by its new, American owners, Anschutz Entertainment Group (AEG).

An impending National Audit Office report will detail whether the taxpayer is likely to get value from money from AEG's fiendishly complex 99-year lease agreement with English Partnerships, struck in 2002.

But few doubt the early commercial success of The O2, with its arena, its 25 restaurants, bars and cafes, and its exhibition centre - currently hosting an unlikely comeback by Tutankhamun.

So how did AEG and sponsors, the mobile phone company O2, succeed where Peter Mandelson and Tony Blair failed so spectacularly?

Harvey Goldsmith, the veteran concert promoter, puts much of it down to American billionaire Philip Anschutz. Goldsmith acted as middle man between Anschutz and the Government in 2001 when Labour were pondering what on earth to do with the monstrous construction and vast tracts of wasteland surrounding it.

"Philip was looking for a flagship venue in London and I said 'come and see the Dome, this is an opportunity to turn a lemon into melon'," says Goldsmith.

Anschutz, whose original idea to buy the Wembley complex had fallen through, was turned on by Goldsmith's idea for a concert arena in the Dome. But the Government was unsure about Anschutz and knew little about his business, which today operates 44 venues around the world and owns a clutch of sports teams, including David Beckham vehicle LA Galaxy.

Goldsmith continues: "I said to the Government 'you've got to have someone here who knows what they are doing.... AEG have got the experience, and if [Anschutz] likes something he writes a cheque out."

In May 2002, he wrote the cheque, buying the lease with property groups Quintain and Lend Lease (who now jointly own the 190-acre Greenwich Peninsula).

But controversy continued to rumble about the ongoing costs to the taxpayer (who would lose £30,000 a month until the venue reopened). The brouhaha peaked in 2005 when the then Deputy Prime Minister, John Prescott, stayed at one of Anschutz's US ranches as the Government pondered who to award the now-defunct super casino licence.

Part of AEG's original plan was for the Dome to house such a giant casino, but the company now insists it is doing just fine without it.

"The whole casino process was a bit of a farce," says David Campbell, chief executive of AEG Europe. "It's obviously a different business plan now but the casino was only 4pc of the total footprint of the land in and around the Dome that we have and we are moving forward without it."

Campbell is the man many say has done the most to make Anschutz's dreams for the venue come true. He was working as chief executive of tourist body Visit London in summer 2004 when AEG targeted him as the man to lead the project, having realised an English representative would smooth its progress.

Campbell, a former Virgin Radio executive, likes doing things against the odds. "When we started Virgin Radio, everyone said a national AM music licence would never work but Chris Evans and I sold Ginger Media [then owner of Virgin Radio] to Scottish Media Group for £225m, so 225 million quid says they were wrong."

The former marketing executive was impressed by the way AEG had kickstarted the regeneration of an area of downtown Los Angeles with the Staples Centre. "From a marketing standpoint they gave me confidence because they were bold and they had ambition. But it was kind of risky."

So risky, in fact, that when Campbell tried to strike a sponsorship deal with O2, which was coming to the end of its sponsorship deal with Arsenal FC, the mobile phone company backed out at the last minute - twice.

AEG was also in talks with one of O2's rivals and a major high street bank about sponsorship, but Campbell says O2's record for rebranding counted for much. "These were the guys who basically went out and took BT Cellnet and turned it into something people now love from a marketing point of view - just as we were trying to turn around the Dome."

But Peter Erskine, then chief executive of Telefonica O2 Europe, was nervous of tarnishing that success. "When Matthew Key [then CEO of O2 UK, now Erskine's successor] came to me with the idea of the partnership with AEG, I was initially very sceptical," admits Erskine.

"I have to admit I was concerned about the white elephant tag and took some persuading; in fact, Matthew had to bring the proposal back to the board three times before we finally agreed to go ahead. To his credit, his persistence was totally justified."

When Bon Jovi opened the venue in summer 2007, even The Dome's harshest critics were won over by its new incarnation and features, including comfy seats, a plethora of restaurants and bars, and the hospitality ushers as biddable as a five-star hotel bellboy.

Campbell says he knew he had a success on his hands when the Dome-baiting London Evening Standard penned a glowing editorial.

Then came Prince. AEG had promoted a US tour for the eccentric pop musical genius a year earlier. "Prince came to us and said he wanted to do something different," smiles Campbell.

"You sometimes have to ask yourself 'how does Prince know these things', but he does, and he knew the record for arena shows in London was 14 by Pink Floyd at Earls Court way back when. He said 'I want to beat this', and also he is very into numbers. He can only count in sevens because those were the nice numbers for him to have, so he had to do 21 shows."

Talks were on and off a dozen times until "in true Prince style, he just came to London and announced he was doing 21 nights", laughs Campbell. "At that point you just think 'erm, great I guess we're doing 21 nights then'... thankfully the tickets sold very well."

Michael Jackson could be next. Since that catalytic run of Prince concerts, sales at The O2 have been so good that some complain the venue is taking business from other, smaller London venues.

But Simon Moran, managing director of SJM Concerts - who has promoted Take That and The Spice Girls at The O2 - says the extra facilities are what have made the venue such a success for AEG. "There was huge gap in the market for a 21st century standard venue in London rather than one for the 1970s with a large capacity. They found a huge gap in the market. They deserve credit for that."